Public Bill Committee

[Mr. Martin Caton in the Chair]

Clause 11

Offences: mode of trial and penalties

Question proposed [this day], That the clause stand part of the Bill.
4.30 pm

Question again proposed.

Brian Binley: On a point of order, Mr. Caton. We were told that it would be absolutely safe to leave our notes and papers here in the room during the intermission. That has turned out not to be the case. I wanted to put that on the record because we cannot be told one thing and then find that our papers have disappeared.

Martin Caton: I understand that that has happened. We shall try to prevent it from ever happening again. Things are in hand to recover any papers that have gone missing. I call Mr. Jonathan Djanogly.

Jonathan Djanogly: I am pleased that I took my papers with me to have a little look at them over lunch; otherwise, matters may have been rather difficult.
Why are we being asked to give Her Majestys Revenue and Customs more powers when those that it has have been used so sparsely, or is the Minister implying that the Government miscalculated so badly when they drafted the National Minimum Wage Act 1998? Furthermore, while I may be persuaded of the merits of proceedings in the Crown court where an unlimited fine is appropriate for large-scale and malicious acts of non-compliance, I am not so easily convinced that it has any real application in the usual course of enforcement. Can the hon. Gentleman enlighten us and explain what proportion of current cases would be prosecuted under the new proposed criminal powers and say how many would remain civil? Furthermore, to date in how many casessuccessful or nothas HMRC applied for the maximum fine of £5,000? I fear that the Government are trying to hand a howitzer to HMRC, when it has shown itself loth to use even a pop gun.
I sympathise with the Governments attempt to empower HMRC and give it the ability to prosecute larger scale offenders, as so concisely set out by Lord Jones, the Minister in the other place, who said:
We do not believe that the sentencing powers available to magistrates would be suitable in the most serious and exceptional cases where employers refuse or contrive not to pay the national minimum wage and do not co-operate with a compliance officers investigations.[Official Report, House of Lords, 13 March 2008; Vol. 699, c. GC258.]
However, the Government need to show that such a problem actually exists. I am concerned about supporting the clause on the basis of only perceived exceptional circumstances for which there is scant, if any, evidence.
If the Minister can answer the questions that I am about to ask him, I might find myself more able to support the clause. First, how many exceptional cases have occurred, and how many are being investigated? Secondly, how would we prevent HMRC from becoming overly zealous in its pursuit of actions in the Crown court at the expense of the taxpayer? Thirdly, if such gross and serial underpayment is being perpetrated, why has HMRC not heard of it and begun an investigation with a view to nipping it in the bud before it reaches a stage that requires such large-scale, legal involvement? If the Minister can provide me with answers to those questions, he will go a long way towards easing my concerns.

Mary Creagh: It is a pleasure to serve under your chairmanship, Mr. Caton. I congratulate the Minister on his elevation to the Privy Council.
I shall speak briefly about the new powers contained under clause 11. It is important that we empower our officials to have the full range of penalties available to them. We talked earlier about the exceptional nature of the circumstances, but in Yorkshire and Humbersidethe region covered by my constituency of Wakefield372 investigations took place last year and there were 158 non-compliant employers. That is a serious issue for my constituents in Wakefield and for the 140,000 people claiming the minimum wage throughout the area.
I will give an example of the sort of people that we are talking about. My friend Joseph Marshall told me about his son who, before the introduction of the minimum wage, was earning £2.25 an hour as a landscape gardener. He earned £18 a day, and was so tired when he came home because he had worked an extra couple of hours that he would fall asleep while eating his dinner. It was one of the happiest days in that familys life when, in 2001, he got a job as a security guard earning £4.10 an hour. Obviously his wages have gone up since.
We are talking about vulnerable workers. The hon. Member for Huntingdon has commented on whether those workers are vulnerable or not, but people who work so hard that they fall asleep during their evening meal and rejoice at earning the princely sum of £4 an hour are the poorest people and most vulnerable workers in the country.
When employers decide not to pay the minimum wage, it is a crime like any other. It is a white collar crime, but it takes money from extremely poor and vulnerable people. Businesses that avoid paying VAT are prosecuted to the full extent of the law because they take money from Her Majestys Government. I do not see why there should not be similar penalties for companies that fail to give their workers the wages that are due. The clause and the provisions in clause 8 mean that for employers, choosing not to pay the minimum wage is not a zero penalty option. I know that my constituents in Wakefield will welcome the measure.

Lorely Burt: I have every sympathy with and am totally in agreement with the points that the hon. Lady makes. She talks about a number of companies that were found not to have been paying the minimum wage. Does she know how many were prosecuted and fined out of the, I think, 174?

Mary Creagh: It was 158 companies across the region, and one of the difficulties is that I have not been able to drill down and see how many that affected in Wakefield. We must also look at the number of people affected. Each of those companies will employ between 10 and 100 workers. That is the size of company involved, as larger companies will have the policies and procedures in place. That probably represents about 1,500 people across Yorkshire and Humberside, and it could have been more. Perhaps I could ask the Minister for a breakdown on the basis of our constituencies, and it would also be useful to know the numbers of people who have been affected. If he could get his officials to place copies of that information in the Library, that would greatly assist us in scrutinising the Bill and in making the case for these further powers to our constituents.

Lorely Burt: I agree with the hon. Member for Huntingdon on the importance of enforcement once the failure of an employer to achieve the national minimum wage is discovered. I have crossed swords with the Minister on a number of occasions about this, but the chance of an employer being inspected for non-enforcement of the national minimum wage is, statistically, about once every 200 years. The Minister rightly says that we should go after companies if we have evidence that they might be flouting the law. However, what concerns me, as the hon. Member for Huntingdon has said, is why those companies are not properly prosecuted. It is certainty of detection that will make employers comply with the legislation, rather than the size of the fines. If companies are not seen to be punished, all the good intentions in the clause, which I completely agree with, will not come to anything because employers will feel that they can flout them with impunity.

Brian Binley: Mr. Caton, it is a pleasure to sit under your control yet again.
I am becoming ever more concerned about the numbers that we are throwing about. We can do damage in that respect; we need to be sure that we are talking factually. Let me declare an interest. I am the non-executive chairman of a company employing 140 people, which I started in 1989. In my experience, everybody that I know is most diligent about paying above the minimum wage, because over recent years, in most areas of the country, it has been hard to get labour at the minimum wage. We need to take that fact into account.

Mary Creagh: I know the hon. Gentlemans businesswe have mutual friendsbut that is set up in the south-east of England, where there is almost a full-employment economy. That is certainly not so in other areas of country and in other countriesin Scotland and Walesin rural areas and in certain cities in the north, north-east and north-west. Does he agree?

Brian Binley: It might be helpful if I told the hon. Lady that we have a site in Wakefield employing some 20 people. I am delighted to tell her that we find it just as difficult to get good labour in Wakefield as we do in other parts of the country. Wakefield is a good place to employ people. I have knowledge of other areas. [Interruption.] I would be delighted if she visited.
I am concerned about the numbers that are being thrown about. We ought to be a bit careful until we get the actual figures, because to talk about companies with 10 to 100 employees suggests that we are talking about sizeable companies. Although there is some difficulty, none of us wishes in any sense to not pay the minimum wage as a minimum. However, in my experience, those companies employing 100 people that are not paying the minimum wage would be important ones. We need to talk about the factsI am sure that the Minister would agree with that point. We ought to be careful until we have those facts.

Patrick McFadden: I echo the comments of other Committee members in welcoming you to the Chair, Mr. Caton. We look forward to serving under your chairmanship this afternoon.
We are in danger of conflating two different things in this debate: the penalty regime as it has operated up till now and the penalty regime as it is changed by the Bill. That is an important difference.
I gave some figures in my opening remarks on the clause, which I shall mention again to help Committee members. In 2007-08, Her Majestys Revenue and Customs, which is responsible for enforcing the minimum wage, investigated 4,524 cases; it found non-compliance in 1,649 cases, of which 96 per cent. were settled without an enforcement notice being issued. That happened under the current, unreformed system of enforcement. HMRC issued enforcement notices to 59 employers and 25 penalty notices for failure to comply with an enforcement notice. I will mention prosecutions in a moment. It is important to set those figures out, because they illustrate that, in the system as it has operated until now, enforcement notices and penalties exist in the process, but they come at the end of the enforcement activity. That is what the Bill changes.
Our thinking behind how enforcement operates has evolved during the course of the minimum wage. This was a major change to the labour market. We took a decision in the early years of the minimum wage to operate with a fairly light touch on enforcement. That was a major change, but the point that I have made several times during our deliberations is that it has been in place for 10 years. Non-payment now is somewhat different from non-payment in the first year or two, when people could argue that the system was new, that they were ignorant of the necessity to abide by it and so on.
We have changed the enforcement regime over time, and the Bill represents a major change. The figures that I gave about the number of companies investigated, penalty notices issued and so on will be changed fundamentally. Clause 9 states that a penalty will now be automatic for non-payment of the minimum wage. Instead of being given at the end of the process, the penalty will be given at the beginning.

Barry Gardiner: May I express my pleasure at seeing you in the Chair, Mr. Caton? I have served under your chairmanship many times and have always enjoyed it.
Does the Minister agree that the current system has provided almost a perverse incentive to the less scrupulous employer to take what is in effect an extended loan from their work force by underpaying them? The only thing that such employers suffered was having to pay the minimum wage after being notified that they were in breach. By contrast, the regime that we are looking forward to will apply a penalty much earlier, acting as a positive discouragement to that bad practice.

Patrick McFadden: My hon. Friend is absolutely right. Employers who do not pay the minimum wage know that if they are discoveredif HMRC comes along and says, Youre not paying the minimum wage,all they will have do, in all likelihood, is pay the arrears. The figures that I gave show that relatively few penalties are issued, because the penalty comes at the end of the process. The point made by the hon. Member for Huntingdon, which was that we should look at the system as it has operated until now and make a judgment that we may not need the new powers, does not really hold, because the Bill will change the system.

Jonathan Djanogly: I take the Ministers point that the system is changing, and we have accepted the rationale for the change, but he needs to make the case why the mode of trial must now involve the Crown court. I do not think that he has yet made that case.

Patrick McFadden: Well, I have not finished speaking yet. I shall come to that.
The hon. Gentleman also asked about prosecutions, numbers and so on. In 2006, discussions were held between HMRC and the Department of Trade and Industry, the predecessor of the Department for Business, Enterprise and Regulatory Reform, on the idea that, instead of the system of penalty notices, we should prosecute people. There have been five prosecutions. The fines involved ranged from £500 to £3,500. I note that one organisation involved was called Rascals, a day nursery prosecuted some time ago for non-payment of the minimum wage. I make no comment on that.

Mary Creagh: I am sorry to interrupt the Minister, but something occurred to me while he was speaking. Is not the difficulty of enforcing minimum wage legislation the fact that things tend to be done quietly, secretly and in quite a close way? That does not empower us as consumers to make choices about which companies we go to, good or bad.
For example, if I were choosing which nursery to send my child to, I would certainly not choose Rascals day nursery, not least because children are priceless and I would not want somebody who was being paid less than £5 an hour looking after the most precious thing in my life, my young baby. The same applies in relation to hairdressers, the security industry and the hospitality industry.
When I am choosing which restaurant to go to for a curry, in the same way as I choose fair trade goods, where possible, in the supermarket, I want to know that that curry is being made by people who have decent labour standards, are getting holidays and are not being taken for a ride. There are a lot of benefits to such matters being dealt with in a criminal court, particularly the fact that they will then become public knowledge. The grapevine will be a powerful deterrent, so that people will choose not to go to a particular firm and so that they will not be exploited.

Patrick McFadden: My hon. Friend makes a strong point. The thing about prosecution in the court is that it is a public event that is on the record.

Jonathan Djanogly: It is worth spending a bit of time on that because it is important. The point that the hon. Member for Wakefield makes is a fair one, but those five particular cases would have been public knowledge anyway because they were prosecuted, I presume, in the magistrates court, so it is not a question whether such cases become public or not. Given the facts that we have at the moment, the question is whether it is justifiable that we also have the ability to prosecute in the Crown court. As yet, I see no evidence that we need that power, but I am open to persuasion.

Patrick McFadden: I referred to the fact that there have been five prosecutions, but 17 cases have been identified by HMRC as ones where it would have liked to attempt to take a case to prosecution, but was unable to do so because of individuals reluctance to testify. That relates to our argument in respect of this clause, the next clause and the previous one in relation to HMRCs powers to take evidence.
I caution against judging how the future system will work absent the changes that we are making in the Bill. Those changes will give HMRC more powers to take evidence and, as I have said before in our debates, make it less reliant on the testimony of often reluctant and sometimes fearful witnesses.
We can overcomplicate the issue. We are not creating new criminal offences here; there are already criminal offences under the minimum wage legislation. The maximum fine for those, in a magistrates court, is £5,000. The clause will enable HMRC prosecutors, in only the most extreme cases of determined violation of the law, to make a judgment that the offence is so serious that a fine of £5,000 will not be sufficient deterrent to the company or punishment that meets the crime. In those circumstances, we want to give those prosecutors the option of trial in the Crown court, where the fine is potentially unlimited, although I do not pretend that that will be the norm or that it will occur in a large number of cases.
The hon. Member for Solihull is right that she and I have exchanged figures and points on the question of inspection by rote a number of times. We do not believe that inspection by rote is the most efficient way to do this; we try to concentrate on cases where people report non-payment and sectors of high risk. There are some 1.8 million employers in the UK. As I said, in the last year, we found non-compliance in 1,650, but targeted inspection and enforcement represent better use of what are inevitably limited resources than simply going round companies by rote with no regard to the evidence of under-payment.

Hugo Swire: Will the Minister inform the Committee of the size of some of those companies that have been fined? Cannot the law be more flexible and proportional on the matter? It seems to me that a serial offender such as a large multinational company should be fined proportionally more if it is serially abusing the minimum wage, whereas it would be disproportionate to fine a smaller company a similar amount for erring once or twice.
Why cannot flexibility be introduced to the scheme? A fine is a fine, and a punishment a punishment, but we do not want to over-prescribe against small offenders and make them reduce their work force to meet such fines.

Patrick McFadden: The size of the companies involved in prosecutions so far has varied from small firms to a local authority, which employed thousands of people. On the hon. Gentlemans point about fines damaging small companies, all businesses can ensure that they do not incur any extra costs as a result of the Bills introduction by abiding by the law and paying the minimum wage. That is the point we are trying to make.

Brian Binley: Nobody objects to proper measures being taken against people who wilfully break the lawthat is not the issue of debatebut I would find it helpful if the Minister gave me a couple of examples from the Revenue in which sizeable companies that employ large numbers of people wilfully broke the law in that way, and also provided a case for going to Crown court. That would help us to recognise whether there is a situation that we need to deal with.
Until I have that information, I shall find this matter difficult. The Minister might say that I should have discovered the information previously, which is a reasonably fair point, but he might help me here.

Patrick McFadden: I am glad that the hon. Gentleman has spoken again, because he has reminded me to thank him for paying tribute to the Governments strong economic record, which has made it difficult for his firm to recruit staff because employment has grown so much. His comments about effective enforcement being in the interests of good business are right. The CBI has said:
Effective enforcement of the NMW is crucial to ensure its continuing legitimacy and support amongst both employers and workers. CBI members therefore support the governments decision to re-examine the enforcement regime for NMW to ensure a level playing field for employers as well as to ensure that all workers benefit from their rights under the 1998 National Minimum Wage Act.
I am sure that we all agree with that sentiment.
The hon. Gentleman asked about the size of the employers involved. As I have said, small employers and a local authority are among those that have been prosecuted so far. The size of employer varies, and the clause allows prosecutors to judge whether the severity of the offence is such that they should opt for trial at the Crown court, which can levy a fine of more than £5,000.

Barry Gardiner: Does the Minister agree that if one were to combine the comments of the hon. Members for Northampton, South and for East Devon, who said that it is reasonable to consider making larger companies pay greater fines, one would have a response to the hon. Member for Huntingdon? A case such as the one to which the Minister alludedthat of a large local authorityis precisely the sort in which the fine that might be paid would rightly exceed the penalties that could be imposed by magistrates, thus providing the reason for going to Crown court that the hon. Member for Northampton, South requests.

Patrick McFadden: It depends through which end of the telescope one looks. The first question that we should ask is about not the size of the employer, although that is a legitimate factor, but the severity of the offence. If a large employer with many hundreds, or thousands, of employees makes a mistake, there is a new penalty regime and we should not lose sight of the fact that the vast majority will be dealt with under that reformed penalty regime, which is civil, not criminal. That will be so for large and small employers.
The clause gives prosecutors the power to opt for trial in a higher court, and it should be seen in relation to clause 12, which provides increased powers on documentation and so on relating to trial by indictment in the higher court. To some extent, the two go together.

Jonathan Djanogly: The Minister has gone half way to answering my queries, and I understand his point that the system is changing and that that is partly the reason for the lack of criminal prosecutions to date, although I do not believe that any hon. Member would say that the existing policy has been successful, which is presumably why we are changing it. I have still not seen proof that Crown court prosecutions will be required. The Minister is saying that they may be required, and on the basis of what may be required, we would certainly have 42 days detention without trial, and a draconian criminal system. We will give the matter further thought, and perhaps return to it on Report.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.

Clause 12

Powers to investigate criminal offences

Jonathan Djanogly: I beg to move amendment No. 16, in clause 12, page 14, line 9, leave out subsection (1).
This amendment has a similar rationale as that of amendment No. 15 in that it concerns the balance between enforcement powers and the freedoms of business. As the Minister said, it is tied in with clause 11. This is a probing amendment to seek clarification of the clause and its proposed effect.
HMRC has extensive powers as a result of the amalgamation of the Inland Revenue and Her Majestys Customs and Excise, not least those under the Police and Criminal Evidence Act 1984, which were provided for HMRCs fiscal functions by the Finance Act 2007. I agree with my noble Friend Baroness Wilcox and reiterate her concern that there must be a real need for the massive extension of investigative powers proposed in the clause. More concerning perhaps is that it could represent the proverbial thin end of the wedge. I would not wish to hamper HMRCs good work in enforcing the national minimum wage, but I am hesitant about freely handing it a hammer to smash a nut when it may have a perfect adequate nutcracker in its box of tools.
I would be interested to hear from the Minister what tools the clause provides to HMRC that it does not already possess, and in what circumstances it may feel it necessary to use them. For example, in what circumstance do the Government envisage HMRC using the investigative powers? Will they be used for all offences, or just for indictable offences? My understanding is that the clause is permissible only on the basis that the offence is now indictable, but will the Minister confirm that that is so?
Given the discussion in the other place about the scarcity of indictable offences, which the Minister confirmed during our previous debate on clause 11 stand part, we must ask whether the powers are necessary given the resulting reduction in civil liberties? In other words, the clause 12 power is dependent on clause 11, which has not been proved to be necessary. I am as yet unconvinced that HMRC has found itself in a situation in which those new proposed powers were necessary, and I should be grateful if the Minister would point me to specific evidence of that need.

Patrick McFadden: It is important that HMRC has the power effectively to investigate allegations that offences have been committed under the National Minimum Wage Act 1998, and particularly the more serious offences of systematically refusing or locally neglecting to pay the national minimum wage. As I have said several times on this group of clauses, we should remember that we have to deal with the fact that vulnerable workers are often reluctant to come forward.
The intention behind the clause, and the reason why we oppose the amendment suggested by the hon. Gentleman is that HMRC investigators are currently hampered in obtaining evidence of offences to the requisite standard, as we do not have the necessary powers on search and, to a lesser degree, the production of evidence. Investigators therefore have to rely on worker testimony to prosecute employers.
I have referred before to the Governments vulnerable workers forum, which has been meeting over the past year. It has heard from representatives of business, trade unions, citizens advice, enforcement agencies and so on. Time and again we have heard of workers being reluctant to come forward because they fear that they could lose their jobs, albeit low-paid jobs, often leaving them with a marginal existence.
Based on investigations, we know that securing worker testimony can be difficult, as workers can face intimidation and threats, and sometimes the loss of employment. HMRC has been forced to abandon some potential prosecutions as a result of such factors. The hon. Gentleman asked how many. Between 2005 and 2007, HMRC identified 17 cases in which the lack of powers of the kind outlined in clause 12 hindered its investigations of non-payment of the minimum wage.
We cannot have it both ways. We cannot say that the enforcement effort to date has resulted in too few prosecutions and that it is not tough enough, and then say that we are not convinced that we need tougher powers. None the less, HMRC is able to identify cases in which, if it had had those powers, it believes that it could have gone further.

Hugo Swire: Would the Minister tell the Committee, for interest, the geographical spread of those prosecutions?

Patrick McFadden: I do not have that information, but I shall look into the matter to see whether I can enlighten the hon. Gentleman later in the Committees deliberations.
Clause 12 remedies the situation by enabling HMRC to use the investigation powers available to it under part II of the Police and Criminal Evidence Act 1984, as it can with other HMRC responsibilities. Those powers would enable HMRC to require the production of, or to search premises for, documents of substantial evidential value to an investigation. I emphasise that those powers will be granted to HMRC only if the courts agree that documents of substantial evidential value are likely to be obtained and that such an order is necessary and proportionate in the circumstances.
The hon. Member for Huntingdon asked whether the powers will be usable only for offences triable by indictment. I am happy to confirm that that is correct. As I said earlier, clause 11 relates to clause 12, and vice versa. The investigative powers in clause 12 could not be used if the national minimum wage offences were triable only as summary offences, as the Police and Criminal Evidence Act powers are available only for indictable offences. The powers in clause 12 would enable prosecutions for the most serious offences in the 1998 Act.

Jonathan Djanogly: Is the Minister therefore convinced that the measure will not encourage more indictable offences, because people will want to use the new investigatory powers?

Patrick McFadden: The measure gives HMRC the power in circumstances in which, at the moment, they are frustrated, because they have to rely on witnesses who are reluctant to come forward. Obviously, the powers will be available only for indictable offencesI have made no secret of that and have said it several times. To some extent clauses 11 and 12 go together. Clause 12 will enable prosecutions for the more serious offences under the National Minimum Wage Act 1998, such as refusing or wilfully neglecting to pay the national minimum wage, without having to rely on vulnerable and reluctant witnesses.
The clauses that we are discussing are all about looking at minimum wage enforcement and asking, Have we got the balance right? Our view is that the system needs strengthening. I stress again what I told the hon. Member for Northampton, South: I believe that most employers are decent and that they want to abide by their obligations, but I also agree with the CBI that a strong enforcement system is in the interests of both good business and vulnerable workers. When developing the proposals in the Bill, our view was that, although the minimum wage has been a great success, the time is right to toughen up the enforcement regime. Clauses 10, 11 and 12 do that. I therefore do not agree with the amendment.

Jonathan Djanogly: Let me first thank the Minister for his comprehensive response to my points. We are moving from a lax systemeveryone agrees on thatthat does not work especially well, to a tougher regime. No one has a problem with moving to a tougher or better regime, but the question is whether we have retained proportionality, because of the level to which we are increasing the powers. I have voiced the Oppositions doubts on that.
It could be that because the powers of investigation in the clause are triggered only by an indictable offence, we move from a lax regime that brings no prosecutions, to an extremely harsh regime, rather than to a system that brings more prosecutions for non-indictable offences, say. The enforcement authorities would have to go for an indictable offence to get the investigatory powers, and I can understand why businesses are concerned that we are going from one end of the spectrum to the other.
That is as far as I wish to take the matter at this stage, but on the basis that we are going to think further about the measure, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Lorely Burt: I did not take part in the last discussion but I listened carefully to all the points that were made. The Liberal Democrats are minded to support the Government on the clause. It is important to give HMRC the teeth to complete prosecutions when appropriate. At the same time, we understand that HMRC might become over zealous. However, given its record, I would suggest that that is not likely. We are therefore happy to support the Government.

Brian Binley: I can understand what the Minister has said on the clause, but to help with the policing of this measure and the minimum wage, the understanding of business is an important part of the process and allows the Inland Revenue and other bodies to do their job correctly. I would want the Inland Revenue to take that into account in its codes of practice, because the last thing we wantI am sure that the Minister would agreeis an over-zealous approach to the issue, which would do harm to the general involvement of business. We do not want business becoming protective in this respect. I simply ask the Minister to seek an understanding of that by the powers that be, who are given increased powers by the clause.

Patrick McFadden: Part of the reason for the measures is the criticism that the system is not zealous enough. We are told to be more zealous but asked not to be too zealous. Our overall judgment is that the system needs strengthening. HMRC has done a good job in recovering arrears for workersit recovers £3 million to £4 million a yearand we should not lose sight of that in a discussion on strengthening the system.
However, we would not be introducing the measures if we thought that the current system was perfect. We do want to strengthen it. I am sure that HMRC will have heard what the hon. Gentleman said about taking care in applying the proposals. I repeat what I said: in future, the vast majority of cases of non-payment will be dealt with by a civil process and the application of the new penalty procedure. I do not believe that that will involve any more than a small minority of cases.
I also think that signals from Parliament are important, and the signal that we are sending by legislating along these lines is that this is not a voluntary option but the law of the land. We are strengthening the penalty regime, and it will be possible to take the worst and most persistent offenders not just to the magistrates court but to the Crown court, where the potential fine is unlimited.

Question put and agreed to.

Clause 12 ordered to stand part of the Bill.

Clause 13

Cadet Force Adult Volunteers

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: We take a slightly different direction in this clause, in the sense that its purpose is the avoidance of doubt. It clarifies a question about entitlement that was posed to us.
The combined cadet forcethe Sea Cadet Corps, the Army Cadet Force and the Air Training Corpsare voluntary, community-based organisations. I am sure that we are all familiar with them and the valuable and important work that they do throughout the country. They currently engage about 130,000 young people in a range of challenging and positive activities, using military themes based on the culture and ethos of the armed forces. Cadet force adult volunteers, as used in the Bill, is the generic term adopted by the Ministry of Defence to refer to any adult who volunteers to assist alongside military personnel in the delivery of the MOD-sponsored cadet force programme. There are currently 26,000 such volunteers.
Clause 13 makes it clear that those adult volunteers do not qualify for the minimum wage. It does not affect those who perform work for the cadet forces in the course of Crown employment, nor does it affect any entitlement that cadet force adult volunteers may have to the minimum wage outside their activities as a cadet force adult volunteer.
The volunteers have a long tradition of offering their time and effort for free. However, along with the high level of responsibility that they take on in their quasi-military role, there are features of being a cadet force adult volunteer that might lead to their being deemed workers, and therefore deemed as coming under the remit of the minimum wage. For example, some of them undergo special security clearance, which includes signing the Official Secrets Act; some are trained to allow safe access to Ministry of Defence facilities and equipment, including firearms, often to the same level as members of the armed forces; and some sign personal declarations or agreements to undertake certain standards of behaviour on joining that could be misinterpreted as a form of employment contract. Although there is no legal entitlement to remuneration, cadet force adult volunteers may be remunerated for attendance at weekend training and summer camps.
Those features are unique to the cadet forces. They stem from their alignment with the armed forces and enable their activities to take place in a military environment and to integrate with the military chain of command. Under the next clause, we will discuss the Bill as it affects volunteering more widely, but for the purposes of this clause, we wanted to make it clear, lest there was any doubt, that cadet force adult volunteers are doing a very valuable job, but it is a voluntary job that does not bring them into entitlement to the minimum wage.

Stephen Crabb: Has the Minister or his Department received any representations from individuals who serve as cadet force adult volunteers saying that they should be entitled to the minimum wage?

Patrick McFadden: We consulted on that. I do not think that there were a huge number of representations, but the MOD and the Government more widely were keen to clarify the situation. The exemption will allow the volunteers to continue to operate as successfully as they do now, while removing any doubt that exists about the minimum wage. It will enable them to continue to deliver what are very valuable and often exciting programmes of challenging developmental activity to young people throughout the country.

Jonathan Djanogly: We support the clause. We are aware of the grave concerns that these voluntary and very valuable cadet organisations have and their wish for the clause to be included. We recognise the huge benefit that these voluntary leaders provide and the contribution that they make to their communities and young people in this country.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Clause 14

Voluntary workers

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: This clause, too, deals with voluntary workers, but in a much wider sense. It broadens the scope of expenses that can be reimbursed to voluntary workers without triggering eligibility for the minimum wage. Again, I am sure that members of the Committee will be appreciative of the hugely valuable work done by voluntary workers in all our constituencies. The clause will mean that as well as being able to reimburse expenses incurred in the performance of duties, which has been the situation until now, organisations will be able to reimburse expenses that were incurred to enable the voluntary worker to perform the duties. That will enable expenses such as those for child care and travel to and from voluntary work to be reimbursed should an organisation wish to do that.
We received many representations about the issue from voluntary organisations throughout the country. We do not seek to place barriers in the way of voluntary work. In fact, we want to encourage, foster and promote it, and the clause helps us with that. Voluntary workers are a very special class of workers, both in the legal sense and in a more general sense. They can be employed only by charities, voluntary organisations, associated fundraising bodies or statutory bodies. The exemption for voluntary workers means that they can continue to give their time for free without being eligible for the minimum wage. In turn, it also means that voluntary organisations can continue to benefit from their dedication and pay them appropriate expenses, enabling them to carry out the voluntary work.
We are determined to ensure that voluntary workers are not out of pocket as a result of their good work, but at the same time it is important to ensure that low-paid jobs beneath the minimum wage do not emerge in the voluntary sector under cover of voluntary work. However, neither can we allow spurious expenses to be claimed as benefits. The clause strikes the right balance and minimises those risks.

Hugo Swire: On a drafting point, or perhaps something more than that, proposed new subsection (1A)(a) refers clearly to expenses
incurred in order to enable the worker to perform his duties,
but proposed new subsection (1A)(c) refers to those that are not accommodation expenses. That suggests that at no stage would a voluntary worker need overnight accommodation. I do not understand why one contradicts the other.

Patrick McFadden: The hon. Gentleman is right that accommodation expenses are not covered by the clause, as is set out quite clearly.

Jonathan Djanogly: Is it not the case that if the accommodation is inside the building, the rules are different? I thought that there was a difference between outside and internal accommodation.

Patrick McFadden: That is not quite the difference. The difference is that section 44 of the National Minimum Wage Act 1998 allows a voluntary organisation to provide accommodation by paying rent directly to a landlord, but it does not pay the rental costs to the voluntary worker.
Reimbursed expenses must have been incurred, or reasonably estimated to have been incurred, so reimbursement is always for an outlay. The expenses must legitimately enable voluntary workers to perform their duties, and they must not be reimbursed for expenses unrelated to their work. Furthermore, those expenses must be reasonably incurred so that the voluntary worker does not benefit from claiming excessive expenses. We will issue guidance to voluntary organisations and volunteers accompanying the changes in the Bill.
We received a significant number of representations on that issue and the clause was amended in the other place along the lines in front of us. I believe that that gives significant reassurance to voluntary organisations and workers that they can receive the appropriate expenses to enable them to carry out their valuable work without getting tied up with the minimum wage.

Jonathan Djanogly: We support the clause and have seen significant evidence that voluntary workers have been left out of pocket because of their inability to claim expenses. I would imagine that some likely volunteers have been unable to volunteer because of that. We hope therefore that the clause will encourage more people to volunteer.

Lorely Burt: We also support the clause and acknowledge the tremendous work that volunteers do. It never ceases to amaze me just how willing people are to give of their time, and it is right that they should be reimbursed for any expenses that they incur. On the accommodation aspect of the clause, will the Minister explain the difference between someone finding accommodation and then having to get the charity to pay the bill, and paying the bill themselves and then submitting it to the charity? That could present some logistical difficulties.

Patrick McFadden: Accommodation was discussed in another place, too. If an employer or landlord is providing free accommodation in return for the work, the worker would be entitled to the minimum wage. That is the case regardless of whether the worker is employed elsewhere. We took the view that to make provision otherwise would enable employers to provide accommodation in return for work rather than pay the worker a wage. All the way through the Bill, we are trying to strike a balance between appropriately supporting voluntary work and workers without sanctioning a sub-minimum wage and a series of jobs emerging around the voluntary sector. That will apply to child care, travel expenses and accommodation, where the rent is paid directly to a landlord. In the round, we think that that is the right balance to have struck.

Question put and agreed to.

Clause 14 ordered to stand part of the Bill.

Clause 15

Offences: mode of trial and penalties

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: I will try not to repeat the fairly lengthy discussion that we had about offences that are triable either way, in the magistrates or Crown court. However, clause 15 covers very similar ground, except that in this case we are talking about offences under the Employment Agencies Act 1973.
As hon. Members will be aware, employment agencies and agency work have been rising higher up the political agenda in recent years. The Committee will be pleased to hear that I do not want to take us down the highways and byways of European directives. However, at the same time as we are strengthening enforcement of the minimum wage, we also want to strengthen enforcement of the regulations surrounding agency work.
At present, under section 5(2) of the 1973 Act any breach of the regulations governing employment agencies is a criminal offence, triable as a summary offence in a magistrates court. The experience of the Employment Agency Standards Inspectorate, which is the part of the Department for Business, Enterprise and Regulatory Reform that polices this area of labour market providers, has been that, although the present approach has proved effective for the great majority of agencies that are reputable and wish to comply with the regulations, it has not been as effective as it might be for the very few agencies that seek to avoid their legal responsibilities and refuse to comply with the legislation. This issue was taken up by Conservative Front Benchers, who asked me several times why there were not more prosecutions under the agency standards rules. That lack of prosecutions has been part of the problem in this area.
There are difficulties related to the limitations of prosecution for summary offences in terms of adequacy of penalties and limitations of prosecution powers. The most significant problem occurs when an individual who has been prohibited from running an agency, because of their unsuitability on account of misconduct, ignores a ban on running an agency. The maximum penalty for breach of a prohibition order is a fine of £5,000, as we discussed before when we talked about other offences that are triable in a magistrates court. Such a fine may not be an effective deterrent where the agency is highly profitable.
We are talking about quite specific circumstances here, where someone can be prohibited from running an agency but they ignore that prohibition because the activity is so profitable and the maximum fine is £5,000. In addition, the penalties may not be adequate for cases where agencies illegally charge, or seek to charge, for work-finding services, or where they fail to pay agency workers for the work that they have done.
At the moment, under the current system there is no scope for the Employment Agency Standards Inspectorate to prosecute for attempting to commit offences under the legislation. Again, this means that the inspectorate needs to identify witnesses who are prepared to give evidence against the agency.
I am not someone who says that all agency work is at the dark end of the economy; I do not believe that. I believe that many agencies give very valuable flexibility and, often, highly paid work to the agency workers whom they employ or find work for. Nevertheless, in some instances we are dealing with dark corners of the labour market, and we know that in those circumstances, relying on witnesses to come forward and give evidence can be difficult. Therefore, we are again seeking here to strengthen the enforcement regime. That can be difficult because some people feelparticularly when they may need to have repeated contact with an agency to get work time after time on short placementsthat if they give evidence, the work from that agency may dry up. Of course, we also often deal with migrant workers who are travelling to and from their home countries.
By making the most serious offences under the 1973 Act triable on indictment or summarily in magistrates courts, the maximum penalty will be increased to an unlimited fine when the case is tried on indictment under clause 15. The clause is important in ensuring that there are appropriate parities for the most serious cases of offences under the 1973 Act, for the reasons that I have set out.
Some circumstances are quite specific to agency work, such as issues to do with the vulnerability of workers and the powers of the standards inspectorate to prohibit people from running agencies. The question of whether such prohibitions can be properly enforced when contravening them can be highly profitable gives rise to some issues. In those circumstances, we have to ask ourselves whether a £5,000 fine is high enough. The judgment that the Government have made is that it is not. In those circumstances, we seek the power to try such offences in a higher court.

Jonathan Djanogly: On the question of the clause and the 1973 Act, we feel that the extension of criminal chargeability is valid and justifiable in these circumstances. We have seen instances where the existing powers are not adequate, just as we said that we saw that the powers were not adequate when discussing clause 11. To that extent, we have not tabled any amendments and will support the clause.

Question put and agreed to.

Clause 15 ordered to stand part of the Bill.

Clause 16

Enforcement powers

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: The clause relates not so much to how offences are tried as to the wider powers of the agency standards inspectors. It will increase those powers by enabling inspectors to require a person carrying on an agency to provide financial records and documents. It will enable them to require records, documents and information at a time and place that they may specify. It enables them to require banks to provide financial information regarding agencies. I will say more about that in a moment. The clause will also enable inspectors to remove documents from an agency in order to take copies. We dealt with some of those issues this morning when discussing minimum wage enforcement.
Again, there are currently problems in assessing the scale of abuses, which compromises the effectiveness of enforcement against rogue and disreputable agencies. There is an absence of powers to obtain financial records from agencies. For example, an agency worker may come forward and say that the regulations are being contravened. They might not be getting paid properly, or they might be being levied with illegal deductions. Even if that case is proved, it can be difficult for the Employment Agency Standards Inspectorate to know whether it is an isolated case or whether such practices are rife in the company.
When investigating serious complaints, the inspectorate needs to find out the scale of the illegal practices being carried out by agencies brought to their attention. If illegal payments have been made or illegal deductions taken, it must know whether those are isolated cases or whether they are widespread. Given the reluctance of agency workers to come forward, it may be that significant numbers of workers are in the same situation and have not had the courage to report it.
At present, the inspectorate does not have powers to obtain financial information from an agency that does not want to provide that information. An inspector does have the power to request any person present on the premises to inform him of the whereabouts of any record or document that is not on the premises and to make arrangements for it to be made available. Frequently, the person on the premises is not the person in charge of the agency. This is a particular difficulty when dealing with a three-party relationship in which the hirer, the agency and the worker are all involved. The person in the hiring company will not necessarily know where those records are. Inspectors have encountered difficulty in obtaining information from agencies where a former member of staff may have removed self-incriminating evidence, or where records are being withheld that may point to another persons being involved in the running of the agencyagain, in cases where there is a prohibition and so on.
So there are a number of circumstances where extra information-gathering powers can help. That is why we believe that the clause will strengthen the powers of the Employment Agency Standards Inspectorate and allow it to look not just at individual cases reported to it but, on the basis of those reports, to find the necessary information to enable it to judge whether they are isolated incidents or a wider practice that requires a wider response.

Jonathan Djanogly: Yes, we feel that the provisions are justified. It is important to stress that we are dealing with a small number of employment agencies here. The vast majority are excellent employers; in fact they are among the best because of the nature of what they do. However, in circumstances where wrong is being done, the situation could be very bad, so provisions such as this are correct and we will support the clause.

Question put and agreed to.

Clause 16 ordered to stand part of the Bill.

Clause 17 ordered to stand part of the Bill.
Further consideration adjourned.[Claire Ward.]

Adjourned accordingly at nineteen minutes to Six oclock.